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Emerging economies in the 2000s: Real decoupling and financial recoupling

Listed author(s):
  • Levy Yeyati, Eduardo
  • Williams, Tomas

The paper documents an intriguing development in the emerging world in the 2000s: a decoupling from the business cycle of advanced countries, combined with the strengthening of the co-movements in the main emerging market assets that predates the synchronized selloff during the crisis. In addition, the paper tests the hypothesis that financial globalization, to the extent that it creates a common, global investor base for EM, could lead to a tighter asset correlation despite the weaker economic ties. While an examination of the impact of alternative financial globalization proxies yield no conclusive result, a closer look at global emerging market equity and bond funds show that the latter indeed foster financial recoupling during downturns, reflecting the fact that they trade near their respective benchmarks and respond to withdrawals by liquidating holdings across the board.

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File URL: http://www.sciencedirect.com/science/article/pii/S0261560612000964
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 8 ()
Pages: 2102-2126

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:8:p:2102-2126
DOI: 10.1016/j.jimonfin.2012.05.005
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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